The Dynamics of Franchise Contracting: Evidence from Panel Data
TLDR
In this paper, the authors provide the first systematic evidence on how franchisors adjust their royalty rates and franchise fees as they gain fran-chising experience, and they conclude that variation in contract terms is mostly determined by differences across firms, not by within firms changes over time.Abstract:
This paper provides the first systematic evidence on how franchi‐sors adjust their royalty rates and franchise fees as they gain fran‐chising experience. This evidence comes from a unique panel data set that we assembled on these monetary contract terms for about 1,000 franchisors each year for the 1980–92 period. We find that there is much persistence, over time, in franchise contract terms within firms. We find this despite sizable across‐firm differences in royalty rates and franchise fees. In addition, franchisors do not systematically increase or decrease their royalty rates or franchise fees as they become better established, contrary to predictions from some specific theoretical models. We conclude that variation in contract terms is mostly determined by differences across firms, not by within‐firm changes over time. Finally, we find no negative relationship, within firms, between up‐front franchise fees and royalty rates.read more
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Four formal(izable) theories of the firm
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TL;DR: In this paper, the authors propose a homogeneity test for linear regression models (analysis of covariance) and show that linear regression with variable intercepts is more consistent than simple regression with simple intercepts.
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Agency Theory and Franchising: Some Empirical Results
TL;DR: In this article, the authors provide an empirical assessment of various agency-theoretic explanations for franchising, including risk sharing, one-sided moral hazard, and two-sided Moral Hazard.